How Probate Affects Real Estate

Mike: Welcome back to the FlipNerd.com REI Classroom, where experts from across the real estate investing industry teach quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Marc: Hi again, it’s Marc Schwartz, your personal family lawyer and your REI host for this topic. Today, we’re going to talk about probate. I am an estate planning attorney who specializes in helping real estate investors and I’m in California so some of this stuff may be California-specific, but most states do have something called probate.

Let me tell you a little bit about probate: Probate is a court proceeding where it will transfer assets from one person to another after death. A mentor of mine once called it a lawsuit that you file against yourself after you die with your own money for the benefit of those you owe money to. The thing about probate is that it’s avoidable and let me tell you why you want to avoid it. First, probate, at least in California, is pretty long. It’s about 12 to 18 months. That means it’s about 12 to 18 months before those assets that you worked hard for are transferred to the next generation or to those who you leave it to.

Probate is expensive. Like I said, at least here in California, it’s 5% of the market value of the assets. Note what I said, “the market value” not the equity. So, if you have real estate, let’s say, that’s worth $1 million, but you only have about $100,000 in equity, the courts are actually going to charge you on the full $1 million.

With $1 million, you can do the quick math. Lawyers aren’t good at math, but it’s about $50,000 that is completely avoidable if you actually hold your real estate either in a living trust or some other probate-avoiding mechanism.

The other thing that you have to realize about probate is that it is public. Anybody can go down to the courthouse, look up what you have and who you left it to. In this day and age of identity theft, the last thing we want are all of our assets being exposed to the public.

The last thing you want to know about probate and why you want to avoid it is that it’s not really within your control, especially if you have minor children because those minor children are going to inherit everything when they turn 18.

The court will try and protect that real estate by giving it to a guardian until your child turns 18, but when they do turn 18, they will be able to access it and not only will they be able to access it, so will their creditors and if there is a marriage, so will their future spouses.

So when owning real estate, it’s really important to keep in mind how that real estate is going to be transferred to your heirs and the thing to keep in mind there is to avoid probate. If you have any questions about that, my name is Marc Schwartz. I’m from the law offices of Marc Schwartz. Please don’t wait till you’re dying to see me. Thank you very much and see you next time

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Please note, the views and opinions expressed by the individuals in this program do not necessarily express those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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